Chapter 5 Tools of Financial Analysis Flashcards
What is budgeting in farm management?
Budgeting is the detailed physical and financial statement of a farm plan or a change in farm plan over time, estimating receipts, expenses, and profit.
What is farm budgeting?
Farm budgeting is a method of analyzing plans for the use of agricultural resources and expressing the farm plan in monetary terms.
What are the types of farm budgeting?
The three types of farm budgeting are: Partial Budgeting, Enterprise Budgeting, and Complete Budgeting.
What is partial budgeting?
Partial budgeting estimates the outcome for a part of the business and calculates expected changes in profit due to a proposed change in the farm plan.
What is included in a partial budget?
A partial budget includes only income and expense items that will change due to the proposed modification in the farm plan.
What are the four questions addressed in partial budgeting?
The four questions are: 1) What new costs will be incurred? 2) What current income will be lost? 3) What new income will be received? 4) What current costs will be reduced?
What is enterprise substitution in partial budgeting?
Enterprise substitution involves replacing one enterprise with another, e.g., substituting paddy for sugarcane.
What is input substitution in partial budgeting?
Input substitution involves replacing one input with another, e.g., substituting machinery for labor.
What is meant by ‘size or scale of operation’ in partial budgeting?
It refers to changes in the total size of the farm or a specific enterprise, e.g., renting additional land or machinery.
What is enterprise budgeting?
Enterprise budgeting estimates all income and expenses associated with a specific enterprise (e.g., a single crop or livestock commodity) and calculates its profitability.
What is the purpose of enterprise budgeting?
Enterprise budgeting helps assess the relative profitability of different enterprises and is essential for complete farm budgeting or farm planning techniques.
What does an enterprise budget include?
An enterprise budget includes expected outputs, variable costs, fixed costs (including depreciation and interest), and distinguishes cash versus non-cash expenses.
What is complete or whole farm budgeting?
Complete farm budgeting is a technique for organizing all farm data to make decisions on resource management, estimating costs and returns for the entire farm.
When is complete budgeting used?
Complete budgeting is used by beginners or those looking to overhaul their entire farm organization and operation.
What is the process of complete budgeting?
The process includes: 1) Appraising existing farm resources, 2) Appraising alternatives or opportunities, 3) Preparing and evaluating alternative plans.
